Impact of Direct and Indirect Tax Revenue on Economic Growth of Puducherry

Taxes are the primary sources of income to the government for running the government machinery and financing various projects and are vital for economic growth and development of a country. Puducherry being a small union territory, the revenue generated is too small that limits the development compared to other States of India. So Government of India has granted Puducherry a relaxation in tax by lowering the tax rates in order to boost growth. This paper examines the impact of direct and indirect tax revenue on economic growth of Puducherry from 2007 to 19 by employing direct and indirect tax as independent variable while SGDP and per capita income are taken as dependent variable to measure Economic Growth. The statistical time series data collected from the RBI handbook of State finance are analysed using econometrics model of stationarity, co integration, causality test and SEM. The study revealed that the tax revenue doesn’t have a short term relationship with SGDP and per capita income, but shows a long term relationship with SGDP and per capita income. The indirect tax has a significant positive impact and direct tax has a significant negative impact on SGDP, while the tax revenues do not influence per capita income